2-20-25 – With wholesale beef prices declining and packers thought to be deeply in the red, some are beginning to wonder if the bloom may be off the rose for cattle markets.
It’s the wrong season to declare a decline in boxed beef prices a harbinger of things to come, but if the decline is a crack in consumer demand, the bulwark of low cattle herd numbers and tight cattle supplies could turn out to be a house of cards.
TOPPING FUNDAMENTALS
In an emailed article published by BEEF magazine, Dennis Smith, of Archer Financial Services Inc., said he’s beginning to worry. While the USDA’s annual Cattle (Inventory) report showed the inventory of beef cows was down 1% from last year, and bred heifers were down 2%, the feedlot’s ability to produce more beef with fewer animals may be stifling the bull market.
“Recent record high cash steer prices ($2.10) may be in place at least until fall, perhaps in place until sometime next year,” Smith said in the article.
He listed eight bearish fundamentals currently at play in the market.
- Continued record heavyweights.
- Packer margins deeply in the red for months.
- Calf crop larger than expected in the annual inventory report (100%).
- Beef imports that surged higher last year.
- A strong dollar encouraging imports and slowing exports.
- Mexican border reopening (despite new case of New World Screwworm).
- Uncertainty regarding tariffs
- And perhaps most importantly, a possible crack in consumer demand for beef.
CONSUMER DEMAND KEY
In consumer demand for US beef is beginning to crumble, cattle feeders are in a very vulnerable position, Smith said. Feeder cattle prices have been record-high for months, driving projected break-evens to very high levels.
If boxed beef prices “stumble,” the negotiating leverage that has been with the feedlot for months shifts to the packer buyer, Smith said. This would leave feedlots loaded with record-heavy cattle, pressuring cash prices.
None of that would make much difference going into the best demand time of the year – as long as consumer demand holds, he said.
The futures market has been concerned about this for weeks, Smith said, with deferred contracts trading at a discount to nearby delivery months and front-end months trading at a discount to cash.
Compounding the issue right now, he said, was the “deeply red” packer margins. It is hard to imagine how packers can continue participating in such a market until they can regain some margin. Cutting chain speeds, which props up cattle weights has never been a sustainable strategy.
In short, packers need some margin to encourage active slaughter rates, and cattle weights need to edge lower, Smith said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $203.08 per cwt to $210.18, compared with last week’s range of $206.00 to $210.58 per cwt. FOB dressed steers, and heifers went for $322.26 per cwt to $327.62, compared with $323.19 to $327.97.
The USDA choice cutout Wednesday was down $1.88 per cwt at $313.89 while select was up $0.05 at $303.76. The choice/select spread narrowed to $10.13 from $12.06 with 93 loads of fabricated product and 28 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef was $374.11 per cwt, and 50% beef was $106.44.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.20 to $1.33 a bushel over the Mar corn contract, which settled at $4.97 1/2, down $0.04 1/2.
The CME Feeder Cattle Index for the seven days ended Tuesday was $276.30 per cwt, up $0.07. This compares with Wednesday’s Mar contract settlement of $269.02, down $0.70.